Setting the right price is always a hard decision.

During my years in business school, I was taught that the right price is the one customers are ready to pay, which sounds right as long as the free market is fully determining supply and demand. Generally speaking, might be the case, yet far from as regulations, legislation, protectionism, taxation get their say.

Yet how do you define the right price?

Basically, it should be: Cost + Margin = Price

And this is where the complications start as volume cost are actually hugely variable, depending on so many factors – availability of raw materials, skilled labor, barriers of entry, simple sipping routes (especially for exports, already mentioned) but also the internal organization and layers of management.

Actually, the calculation might be Price = target margin + negotiated cost.

This way your price is dynamic depending on your internal structure and business requirements as well as your negotiation leverage – and would be country /market dependent.

Price is also an important marketing tool to position your products / services. Will develop this in another post.

Let me add an important element, market share.

If you have less than 20% market share, your price is without much importance as your products will most likely be ignored, as either too pricy or not functionally advanced enough – simply fighting for the breadcrumbs.

Which could still be a profitable spot, depending on your internal cost structure and growth strategy but always fighting to be squeezed out of business.

Most price models are rational, yet humans are far from which explains the huge premiums people are ready to pay for high-end, luxury and fashion goods. Especially fashion products, where an ever higher price paves the way for stronger growth, this is part of the marketing positioning..

How do you set your price?

#price #margin #positioning #marketshare